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Friday, May 15, 2009

HUD/FHA just announced a major revision to using the $8,000 tax credit for use as a down paynt on an FHA loan. To summariaze it for you, HUD said a home buyer can still use the $8,000 tax credit to apply towards a down payment, buy down the interest rate, or pay for closing costs pior to closing the loan, but the home buyer still needs to come up with 3.5% of their own money.

If you choose this option, to monetize the tax credit you will need to receive a 2nd lien loan from an FHA approved lender or an FHA approved non-profit agency. After your loan funds, the IRS will advance the tax credit to the lender or non-profit to pay off the loan.

It was only 7 months ago that HUD repealed the guideline allowing seller paid down payment assistance in FHA purchase transactions.Their primary reason for doing this was they said the default rate was higher when the buyer doesn’t have any skin in the game. So HUD has justified the down payment being safe for the borrower if it comes from the government (in fomr of a loan) but not if it comes from the seller. Interesting rational.

What does this mean for first time home buyers in Riverside - San Diego - Orange - San Bernardino county? If you purchase a home before Dec. 1, 2009, you can now receive your $8,000 tax credit (read Tax Credits for California Home Buyers) in advance to use for a down payment on an FHA loan. Since FHA loans only require a minimum 3.5% down payment, this means on a $230,000 purchase a FTHB would only need $225 for the down payment. This is assuming you negotiate for the seller to pay your closing costs as well.

In HUD’s Mortgagee Letter 2009-15 press release, it outlines the parameters of how this can be done. It basically says that a short term bridge loan or a second lien must be used to advance the funds to the home buyer and only approved entities can offer these secondary bridge loans. They are:

Federal Agencies

State Agencies

Government Agencies

FHA Approved Non-Profits

FHA Approved Lenders

Here are a few other highlights from HUD’s recent Mortgagee Letter 2009-15.

Borrower cannot get any cash back - if they need $7,000, they can only get $7,000.

Government agencies and non-profits can do second liens against the house for the down payment.

The payments on that second lien need to be counted into qualifying DTI ratios.

FHA approved mortgagees can do a “bridge loan” against the tax credit.

If payments on the tax credit are deferred, the deferment must be for a minimum of 36 months in order for the payment to not be included in the qualifying ratios.

If you do not qualify for the first time home buyer tax credit or don’t want to borrow to get the $8,000 advanced to you, I can get you approved for a USDA 100% no down payment home loan with no mortgage insurance......and you still get the $8,000 tax credit. Plus, the monthly payments will be lower than an FHA home loan. Read 100% Financing w/ No Mortgage Insurance to learn more.

If you don’t have the full 3.5% down payment required by FHA but feel you can manage a monthly payment between $1,400 to $2,000/month (this includes all taxes and insurance) then call me at 951-332-7864 to discuss how we can make home ownership a reality for you. I do not charge for pre-approvals, have no application fees, and will send you a free credit report to those who inquire.